Financing the MBA
The following has been adapted, with permission from the author, from the upcoming book: Breaking Business School: A Military Veteran's Ten Step Guide to MBA Success
An MBA’s cost depends on numerous factors: How much of the GI Bill are you entitled to? Are you going to a private or a state school? Did you get any scholarship money? Do you qualify for Veterans Readiness and Employment (VR&E)? Depending on the answers to these questions, the degree’s cost can range anywhere from $0 to $200k. Here is an overview of both the GI Bill and VR&E :
The GI Bill is an entitlement meaning that, unlike VR&E, if you served on active duty for a set period of time, you are entitled to the GI Bill to pay for your education. Here are the rates for 2020:
So what does this all mean? It means that you are entitled to receive a portion of this rate if you serve on active duty past any initial service obligation you have from your undergraduate education (four years for ROTC and five years for academies). Therefore, your clock only starts ticking once you have served your initial commitment. So, you will have to serve more than 90 days past your service obligation to get 40% benefits and an additional three years to max out your benefits. Enlisted time including prep schools such as the Naval Academy Preparatory School (NAPS) and the Military Academy Preparatory School (MAPS) also counts towards your service total. For example, if you served two years enlisted, followed by one year at NAPS, and went on to graduate from the Naval Academy, you will be entitled to 100% GI Bill Benefits at your five-year mark.
If you paid out-of-pocket for your undergraduate degree and served on active duty for three years, you will get 100% of your GI Bill Benefits. The 100% threshold is significant because it opens up the Yellow Ribbon program whereby your school and the VA provide matching funds to close the gap between a school’s tuition and what your benefits cover.
In addition to tuition assistance, you also receive a monthly housing stipend equivalent to the E5 with dependents Basic Allowance for Housing (BAH) rate for the zip code of your school or a flat fee for an international school. This amount is also prorated to your GI Bill rate. You only get this stipend while you are attending school because it is pro-rated for the days you spend in class. For example: if you start your semester on the fifteenth of a given month, you will only get paid half of your usual rate.
Given the extent of these benefits, you may ask yourself if you should stay on active duty up to your full-benefits point to increase the financial support you receive from the VA. There is no catch-all answer to this question. Rather, this decision should come down to your personal circumstances. What will you have to do to get to that length of service? If it is only a matter of extending your current orders by a year or less, you may want to consider staying in to get your Yellow Ribbon benefits because they can often be worth as much as $70,000. However, if the additional service required will put stress on you and your family, then I would say that you should start the degree at your earliest opportunity. You will have plenty of time to make back the money you spend on an MBA.
This is a lesser-known but incredibly generous program the VA offers that covers 100% of education costs for a veteran pursuing professional training. That’s right, VR&E will pay the entire costs of your MBA and give you an identical stipend to what you would receive from the GI Bill. So what is the catch? VR&E is not an entitlement. To qualify for the program, you need to have a service-related disability rating of 10% or more and convince a counselor that you need the degree to gain “suitable employment” after leaving the military. There is a high degree of subjectivity in what type of job is considered “suitable employment” and whether an MBA is required for it.
Even if you have the required disability rating, there is no guarantee that your counselor will find you entitled to the funding. You will need to demonstrate any barriers your disabilities present to you in the job market and how an MBA will help you get a job where they are not exacerbated. For example: one of my good friends was a Marine Corps Infantry Officer who suffered from chronic back pain as a result of his numerous ruck marches. His military training translated into a career in law enforcement or security services. However, his back pain made a job where he would spend most of his time on his feet unsuitable. Therefore, he needed to get an MBA to get training for a new career. He was successful in getting approved for VR&E; however, many who apply are not.
Even though VR&E is not a guarantee, there are certain things you can do to maximize your chances of receiving the benefit. First of all, you need to get your disability rating documented as soon as you can. I highly recommend getting the ball rolling before you separate because the approval process often takes well over six months. Second, you need to do some soul searching. Do you need an MBA to enter your chosen career path? Did the military provide you with the training you need to succeed professionally in this career? Do your disabilities preclude you from any careers? You will have to provide honest answers to these questions to your counselor and show that you genuinely need the degree to get suitable work. Finally, if you are eligible for the program, you should apply for these benefits when you move to the city where you will be getting your MBA. The best piece of advice I have regarding VR&E is that, when planning your budget, you should only plan for GI Bill funding and treat anything you may get from VR&E as a bonus.
Even though an MBA can be a huge professional benefit, it is by no means a guarantee of success. It is up to you to prepare for your job interviews, leverage your network, and make use of your time at school. If you party your two years away, the degree will be a complete waste of your time and money. Furthermore, the high-paying jobs many MBAs gravitate towards are high-pressure and often require over sixty hours of work a week. So, if you are looking for a relaxed, nine-to-five job that pays you about $100,000 a year, there is really no point in a full-time program. In a nutshell, earning an MBA from a top program will only increase your chances of getting a high-paying, intense job, not guarantee it. You must recognize this reality when you decide whether or not you want to go for a full-time MBA after you leave the military.
From a purely financial perspective, you can calculate the value of the MBA investment in terms of how long it will take for the degree to pay for itself. This calculation depends on a variety of personal factors and circumstances, many of which you will not know until you have finished your MBA. So, the best you can do is make a guess as to what they will be in your case and run through the calculation for yourself. I have run through two sample calculations and you can use this same methodology to predict how long it will take for your MBA to pay off. I assume each veteran will be able to get a job with a total annual salary of $110,000 ($75,000 after taxes) had she not gone for an MBA, and use after-tax, take-home income from Virginia to calculate the two-year opportunity cost. I also use the after-tax income to calculate the salary differences in each case. Since these are rough approximations, I did not factor in student loan interest payments or raises which can affect the total payback time. I assume that these veterans attend a hypothetical MBA program with a $140,000 total tuition and a $2,000 BAH stipend for 20 months.
Case 1: Veteran with 60% GI Bill Benefits, has an internship that pays a total of $15,000 after taxes, gets a job with total compensation of $150,000 per year, and receives a $15,000 signing bonus after taxes.
Case 2: Veteran receives VR&E (all tuition and fees paid), gets an internship that pays a total of $20,000 after taxes, gets a job with total compensation of $200,000 per year, and receives a $20,000 signing bonus after taxes.
As you can see, in most cases, the investment will often pay off in well under a decade, and, sometimes, even as little as one year. Again, these calculations are rough approximations that depend on a variety of personal factors, so I advise that you develop several projections given your target schools and career goals to determine how long it will take for your MBA to pay off. Whether or not the degree is worth the investment of time and money depends entirely on your professional goals and the quality of school you can get into. However, I can tell you that I never once regretted getting my MBA. Beyond the higher paycheck you should receive, the two years you spend at any program are a transformative experience that will help you transition from the military to the private sector.